– Sudhir Narasimhan
Last week I spoke about how ubiquitous connectivity (click here to read) is changing the way we engage with customers while redefining customer experience.
Since then I have been talking to retailers across various industry segments. The apprehensions are similar all over. From what I gathered, the retail sector is likely to undergo a massive transformation over the next two years and moving forward, brick and mortar retailing is expected to become a tougher business than it already is.
Consider this: A book seller in Bangalore realized that he is losing out big time to the Amazons and the Flipkarts of the world and decided to reinvent his business. He closed his bookshop and today he is building a restaurant at the same place. “One thing you can’t yet do in the virtual world is to create an ambience in a physical space and serve great food. This way, I hope to last for sometime,” were his words of wisdom.
It is not booksellers alone who are being mowed down by predators from the virtual world. Today people are buying a range of products including consumer electronic items, garments, and accessories like cosmetics, shoes, mobile phones and computers off the net. And E-tailers are meeting the demand with great offers that consumers can’t resist.
My 17-year-old daughter who used to visit malls to shop for branded clothing and accessories two years ago is comfortable shopping online today. She knows that she will get the clothes that fit her (even if they don’t she can always ask them for a replacement) and they will deliver in no time. My wife picked up a mixer/blender online because we couldn’t get a similar deal at any retail store or even at the Metro chain, which is supposed to be selling you stuff at wholesale rates.
A few years ago none of us would have bought any of these goods online, as we would have preferred to touch and feel the stuff that cost us money. But the availability of 360-degree product views and video demos on online stores and more importantly irresistible deals combined with superlative logistics support have been changing the way people shop once and for all.
The difficult part of the brick and mortar retail in India today is that your costs are a lot higher than they used to be. In any major city shop rentals have been steadily increasing by about 5 per cent on an average annually. The costs of manpower too are going up, courtesy inflation. On an average you end up paying at least Rs. 10,000 per month for an office assistant and about the same or more for a delivery boy. Meanwhile, margins have also shrunk by 50 per cent in the last few years.
Retailers tell me if they made, say 7% on selling computers two years ago, today stand to make only 3.5%. Many of them are discovering it is increasingly difficult to meet costs, let alone turn in a profit.
The pressure on them is piling up further as customers do their research well and expect them to better the deals offered by E-tailers. It’s not merely the small retailers who are feeling the heat. Larger retailers like Croma and Reliance iStore are also witnessing diminishing footfalls to the extent that they are finding it difficult to break even considering the costs involved in a brick and mortar operation. I heard that their plans for the future include moving into B and C class cities where E-tailing has not caught up the way it has in larger cities.
It’s clear that the retail industry is on the cusp of a disruptive change. The extent of transformation consumer behavior will undergo in the months to come will need sellers to reinvent themselves. Have you thought thru’ where you are heading? I will be happy to hear your views on how you plan to survive.
(The author is a consulting editor with Trivone digital services)